Higher Education Finance and Cost-Sharing in India

1. Brief description of the higher education system in India

The India higher education sector has expanded at a phenomenal rate in the last century. The
European system of higher education was introduced in India by the British in 1857 with the
establishment of universities for European education in three cities and withdrawal of support for
indigenous education. By India’s independence in 1947, an additional 18 universities had been
established. In 1950-51 when the country’s First Five Year Plan was launched, there were 27
universities serving 174,000 students. By 2006, there were 348 universities (composed of general
universities; science and technical universities; open universities; agricultural universities;
women’s universities; language universities; and medical universities), more than 17,625
colleges, and 10.5 million students, making India’s system of higher education the third largest in
the world in terms of enrollment and the largest in terms of number of institutions (Agarwal, 2006
5). Table 1 shows the breakdown of higher education between public and government aided and
unaided private institutions.

Table 1
Number of Higher
Type Education Institutions
(2005/06)
Public Government 4,493
Aided 5,760
Private
Unaided 7,720
Total 17,973

Higher education in India is made up of regular education and distance education. There are four
types of regular education (general, technical, medical and agricultural) with each type divided
into university level and college level education. Distance education is university-based and is
limited to undergraduate and post-graduate degree and diploma courses in general and technical
education (Narayana, 2002).
Under the Constitution (42nd Amendment) Act of 1976, both the Federal/Central/Union and the
State Governments are responsible for the promotion and development of higher education. The
University Grants Commission (UGC), established in 1956 by an Act of Parliament, is
responsible for funding, coordinating, monitoring and maintaining the universities in the country.
The 16 Central Universities were established by Acts of Parliament and are directly controlled by
the Union (central) government, while state universities are set up by state legislatures. In
addition to these, there are higher education institutions that are granted “deemed to be
university” status by the central government and those that are established by Parliament or state
legislatures as “institutions of national importance”. All of these are degree granting institutions.
The Central Advisory Board of Education (CABE) serves as the liaison between the Union and
the State governments. There are no private universities, though the Prime Minister’s task force
on education (as well as the Prime Minister’s Council on Trade and Industry) has recommended
that a private university bill be passed to encourage the establishment of new private universities.
Colleges are established by State Government, private agencies and, sometimes, universities.
Private colleges account for approximately three quarters of all colleges.
Despite its expansion, enrollment in higher education in India today accounts for only 11 percent
of the relevant age group (because of growth in population in the relevant age group) and
facilities fall short of demand (Agarwal 2006). In an effort to equalize access, the government has
instituted a policy of “reservations” whereby a certain percentage of admissions are reserved for
the castes that are considered to be low in the caste hierarchy and for the aborigines or tribes who
were traditionally excluded from education. (Chitnis, 1999, 25).
For admission to university–level studies students must have senior/higher secondary school
certificates with some institutions setting minimum marks on the Higher Secondary Examination
and others requiring students to sit for admissions tests. Certain centrally sponsored institutes and
universities and the Indian Institutes of Technology require students to take the Joint Entrance
Examination.

Financing Higher Education

The cost of higher education in India is supported by the central and state government sector and
by the nongovernmental sector (including student/parents and the rest of the community). The 16
Central universities receive maintenance and development grants from the central government
through the UGC, while other universities and colleges receive maintenance funds from state
governments and some development grants from the UGC.
Private colleges, instead, are either privately managed and publicly funded (aided colleges) or
privately managed and funded (unaided colleges). Private aided colleges are required to admit 50
percent of their students based on their performance on entrance exams (free seats). These
students are not required to pay any extra fees or tuition. The other 50 percent of students are
admitted based on their willingness to pay extra tuition (payment seats). Unaided private colleges
set their own fee levels (below a government-set ceiling) that are generally extremely high in
comparison to the aided private colleges and government colleges.
To finance higher education expansion, the government has consistently increased its share in the
total expenditure on higher education, from 49.1 percent in 1950-51 to more than 90 percent in
1999 (Chitnis, 1999, 26). Students pay a nominal fee that constitutes 10 to 15 percent of the
budget of the institution (Maiti, 2001; Tilak, 1997)1. However, some data suggests that fee
contributions may vary considerably between Central and state institutions with student fees
contributing a significant amount to university income in the state universities. Several
universities offer fee waivers to women students.
The higher education financing system is beginning to change and a policy of fostering financial
independence in universities and degree colleges (reducing government allocations to universities
and increasing user fees) has been in place since 1997. Despite policy pronouncements over the
last six years, however, it is only fairly recently that action has been taken. While the UGC has
the legal right to set tuition and fees, it has not done so – in practice, it is the individual state
governments and institutions that take the initiative.
While some states like Andhra Pradesh are in the process of significantly increasing tuition in
their state universities (and in the case of Andhra Pradesh also in the costs charged for hostel
accommodation), less action has been taken by many other states largely because of the violent
student resistance to the introduction of higher fees. Nevertheless, there is a slow trend towards
cost recovery (with special care being taken to frame policies to assist low-income and
disadvantaged students). Professional and private educational institutions have come to accept

1
Agarwal (2006) calculated tuition fees as making up 19 percent of total public university income.
this change more readily because these students are often from economically stronger families
and are more certain of gainful employment on completion of their education (Arora, 2000)

A report was presented by the Prime Ministers Task Force on Education (created in 2000) in
April 2000 that recommended, among other measures, full cost recovery in higher education
asserting that students and parents can bear the costs of higher education and that the central and
state governments should only fund those disciplines that have no market orientation. In May
2000, the HRD Ministry decided that higher education institutions should raise 7 percent in that
academic session with a one percent increase each year.
To offset the increase in fees, the Government of India announced a new education loan program,
the Educational Loan Scheme, in April 2001. The scheme provides loans to “poor and needy”
Indian citizens to undertake basic education and to “meritorious student” to pursue higher
education at home or abroad. As compared to the bank-specific education loans scheme in the
past, the new scheme is a) non-bank specific in nature as it can be adopted by all banks, b) wider
in scope as it includes a large number of courses, and c) broader in scope as it covers both fee and
non-fee expenditures which are related to study (Narayana, 2002). The program does not require
collateral for the first $8,595 (Rs 400,000) loaned2 and charges an interest rate tied to the lending
rate set by the Reserve Bank of India (12 percent) for amounts up to $8,595 3. Larger loan
amounts carry higher interest rates. The maximum amount awarded is Rs 750,000 ($16,115) for
studies in India and Rs 1,500,000 ($32,230) for studies abroad. The interest rate is not
compounded during the repayment holiday/moratorium (course period plus 1 year or 6 months
after getting a job, whichever is earlier).
There have been relatively few students4 availing of the loan scheme due to what is considered a
high interest rate, the short repayment period, the fact that they can only be used for programs
approved by the government and the stipulation by some banks that loans will not be made to
students whose families earn less than $209 per month, which disqualifies most Indians, since
there is no provision for governmental underwriting.
A number of nationalized banks offer study loan schemes including (but not limited to):
The Centvidyarthi Finance for Education program offered by Central Bank loans up to Rs
300,000 ($6,446) for higher studies in India at a margin of 15 percent for loans up to Rs100,000
($2,149) and 25 percent for loans up to 500,000 ($10,743) with relaxed margins for individuals
from the scheduled castes and tribes. The interest rate ranges from 12.5 percent to 14 percent
depending on the loan amount. For families whose income falls under Rs12,000 ($258) per year,
the interest rate is 4 percent. A 1 percent rebate is granted in the rate of interest for regular
repayment of interest and installments and payment of insurance premiums.
The Federal Bank Scheme offered by the Federal Bank loans a maximum of Rs500,000 ($10,743)
for studies in India (no margin). The interest rate varies depending on the size of the loan.
Repayment begins 12 months after the course is completed or when the student gets a job
(whichever comes first). The maximum repayment period is 5 years from the end of the course.
The State Bank of Mysore scheme that offers loans to students based on merit up to Rs800,000
($17,190) for study in India at a margin of 10 percent and an interest rate that varies depending on
the size of the loan (13 to 15 percent). Collateral security is required. Repayment begins
immediately after the loan’s disbursal to cover the interest portion during the period of study. The

2
For loans above Rs 400,000 the margin becomes 15 percent and collateral security equal to 100 percent of
the loan.
3
2001 official exchange rate of $1=46.540
4
Only about about 2 to 3 percent of students (Agarwal 2006).
installments are increased one year after the completion of studies or when the student gets a job.
The loan must be repaid within a period of 48 months.

The State Bank of India’s Gyan Jyoti Scheme that offers up to Rs800,000 ($17,190) in loans at a
margin of 10 percent to needy and deserving students at an interest rate that varies from 12.21
percent to 14.28 percent depending on the size of the loan. Collateral security is required. The
loan is to be paid within a maximum period of 60 months after completing a course or securing a
job. A moratorium of one year may be given.
The Dena Bank’s Dena Vidya Laxmi Education Loan Scheme offers up to Rs350,000 ($7,520).
The loan is repayable within 3 to 5 years from the completion of studies and repayment
commences after 12 months from the date of completion or 1 month after getting employment.
In addition, some private trusts and endowments and higher education institutions run their own
loan schemes and offer some scholarships.

II. Estimated Expenses of Higher Education

India
Higher Education Expenses Borne by Parents and Students
First Degree, Academic Year 2001-2002

[National currency (Rupees) converted to $US by [2001] purchasing Power parity estimate $1
=India rupees 11.785]
Public Private
Central State University Gov’t College
University6 University7 College College (aided)
Special “One- 40 200 350 200 200
Time” or “Up $3 $17 $12 $17 $17
Front” Fees
240 1,000 440 440 440
Tuition $20 $85 $37 $37 $37
Instructional

105 625 800 586 586

Expenses

Other Fees $9 $50 $68 $50 $50

Books & 865 521 447 224 605
Other $73 $44 $38 $19 $51
Educational
Expenses8

5
1998 official exchange rate was $1 = Rs41.259 and the PPP was $1 = Rs10.44; the 2001 official exchange
rate was $1 = 46.540)
6
Central University is funded by union government. Costs here are from website of Jawaharlal Nehru
University, New Delhi lodging at the university hostel.
7
State University funded by state government. Tuition costs are from website of University of Mumbai.
Lodging costs here are from website of Allahabad University with lodging at the university hostel.
Admisssion fee, registration fee, sports development fee and examination fee are from Bangalore
University information.
8
Estimates based on the 52nd Found of the National Sample Survey (NSS) on Attending an Educational
Institution in India: Its Level, nature and Cost inflated by annual rate of inflation from survey year (1996-
97) through 2001-02.
 Subtotal 1250 2346 2037 1450 1831
Expenses of $106 $199 $173 $123 $155
Instruction
Lodging 440 2000 1960 100 3000
$37 $170 $166 $8 $255
Student Living Expenses

Food 6500 6000 6500 7500 12000

$552 $509 $552 $637 $1019
1366 1060 500 420 460
Transportation $116 $90 $42 $36 $39
9

Other Personal 291 212 164 73 226

Expenses10 $25 $18 $14 $6 $19
Subtotal 8597 9272 9124 8093 15686
Expenses of $730 $787 $775 $687 $1332
Student Living
Total Cost to 9847 11618 11161 9543 17517
Parent & $836 $986 $947 $810 $1487
Student

Note: The table was compiled in large part by M.R. Narayana, Professor of Economics, Institute
for Social and Economic Change, Bangalore.

References
Agarwal, Pawan. (2006). Higher Education in India. The Need for Change. New Delhi, India:
Indian Council for Research on International Economic Relations.
Arora, Alka. (2000). The Increasing Costs of Higher Education to Parents and Students in India:
A Policy Study on Cost Recovery and Access, SUNY at Buffalo PhD dissertation.
Arora, Alka, (1999) Higher Education in India: Policy trends in cost recovery and student
access, Buffalo: SUNY at Buffalo Center for Comparative and Global Studies in Education.
Chitnis, Suma (1999) “The Transformation of an Imperial Colony into an Advanced Nation: India
in Comparative Perspective” in Higher Education in the 21st Century: Global Challenge and
National Response, Altbach, Philip G. and Patti McGill Peterson, eds., IIE Research Report
Number Twenty-nine.
Maiti, Prasenjit (2001) “World view: Expansion without funding”, The Times Higher Education
Supplement, October 5, 2001.

9
Estimates based on the 52nd Found of the National Sample Survey (NSS) on Attending an Educational
Institution in India: Its Level, nature and Cost inflated by annual rate of inflation from survey year (1996-
97) through 2001-02.
10
Estimates based on the 52nd Found of the National Sample Survey (NSS) on Attending an Educational
Institution in India: Its Level, nature and Cost inflated by annual rate of inflation from survey year (1996-
97) through 2001-02.
Mojumdar, Aunohita (2000) “Concern at budget plans to privatize education”, The Times of India
Online, December 28, 2000.
Narayana, M.R. (2002) “India, Higher Education Expenses Borne by Parents and Students.”

Rao, K. Sreedhar (2002) “Universities set for 10 p.c. fee hike” The Times of India Online,
January 18, 2002.
Shen, Hong and Wenli Li. (2003). A Review of the Student Loan Scheme in China. Bangkok,
Thailand: UNESCO and Paris, France: International Institute for Educational Planning.
Tilak, Jandhyala B.G. (1997) The dilemma of reforms in financing higher education in India,
Higher Education Policy, Volume 10, No. 1.
Times News Network (2001) Agitating AU student clinch victory on fee hike, The Times of India
Online, July 18th.

Organizations consulted via the internet:

Academics India http://www.academics-india.com

Association of Indian Universities http://www.aiuweb.org
Government of India, Department of Education http://education.nic.in
Jawaharlal Nehru University http://www.jnu.ac.in
University of Delhi http://www.du.ac.in